Red Zone residents - buying property

By Andrew Oh, Associate

First published in The Press, 17 September 2011

We are getting large number of enquiries from Red Zone residents about buying homes to replace their property in the Red Zone. There are numerous matters to be considered and doing so before you buy a new property will minimise the risks of getting into a tangle.

1. Government (CERA) offer for your property . If you have received an offer to buy your property in the Red Zone, make sure you have considered all your options before you commit to buying something new. You need to know what and when you are going to get paid. Doing so will allow you to buy your new property with confidence.

2. Payouts . When it comes to paying the purchase price for your new property, you need to understand where the funds are coming from. If you have received payments from EQC or your insurance company and have not applied these payments towards fixing your property yet, the amount of these payments will be deducted from the purchase price under your CERA or insurance offer. Depending on the terms of your insurance policy, if you need to rebuild or relocate, it is likely that the insurer will require you to apply the EQC payment BEFORE it advances the balance, this will be difficult if you have used it for something else. Before you commit to a purchase, be sure you can pay the purchase price as required by the agreement.

3. Your Bank. If you have a mortgage, you must discuss your plans with your bank. You do not want to commit to a purchase to find that your bank will not provide you with a new facility or will not release its mortgage for you to settle with CERA or your insurer. We advise that you talk to your bank about their requirements. Your bank may also be able to help by providing a contribution towards your legal fees for purchase of your new property.

4. Sale and purchase Agreement

a. Purchase price

When you are looking at what you are going to offer, you need to know what you are getting. Is there earthquake damage to the property? If so, who is going to fix it? If you are going to take over the sellers insurance claim, who is going to meet the excess?

b. Deposit

If you intend to use any EQC payment for the deposit, you should check with your bank and insurer that you have the authority to use that money as a deposit.

c. Settlement/Possession date

Make sure you set a date that is consistent with the date you are going to receive payment for the sale of your property, otherwise you need to consider the cost and implications of bridging finance.

d. Conditions

When you make your offer you will also need to consider what special conditions you need for your circumstances. You need to consider:

Finance – talk to your bank about their requirements. They may want various professional reports – you need to take into account the costs associated with obtaining them. If bridging finance is required, be sure you are know the costs of getting it.
Pre settlement insurance issues – Where there has been earthquake damage, you will want full disclosure of any claim the seller has made to EQC and/or the sellers insurer. One issue that needs to be checked is that any EQC claim which you are likely to takeover includes cover for both the buildings and land. You will need to discuss with your lawyer how you wish to deal with not only this damage but any earthquake damage that occurs between the agreement becoming unconditional and settlement.
Post settlement insurance issues – like your bank, an insurer will also have requirements before they will accept to insure the property. Be sure that not only you, but your bank, is willing to accept the terms of the insurance proposal.
Getting a Land Information Memorandum
Getting a search of the Title
Getting a Valuation report
Getting a Geotechnical report to check for land damage or the ability to build.
Getting a Structural/Building report to check the integrity of the building

e. Costs

In the current environment, the cost for buying a property has significantly increased. You need to allow for the costs of the various reports as part of your budget.

5. Buying at Auctions. If you are buying at an auction, be prepared. You will need to have the answers to the issues raised before you bid as you may own the property on the fall of the hammer.

It has been said that buying a house is one of the most important decisions a person will make in their lifetime. Doing your homework before you buy will ensure that you have all the information you need to make an informed decision about your next house purchase. Talk to your lawyer who can draft the appropriate special conditions for your purchase.

Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

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